Our view: Key for us from Q2 results was a stable backlog and balanced book-to-bill, despite a meaningful uptick in deliveries, which points to a robust demand backdrop which we believe positions Bombardier well to execute on its 2025 targets. Margins were also in focus on the call due to mix headwinds; however, we remain confident in management's ability to execute on improvement next year given increasing Global deliveries, higher Services revenue, and line of sight into better pricing. Key highlights from our call back with management below.
Key points:
• Q2/24 results. EBITDA of $335MM came in well above consensus expectations of $291MM (RBC: $259MM) and was up +22% y/y driven by higher deliveries (that came in at 39, well ahead of our 31). Margins came in at 15.2%, down -120bps y/y and below consensus 15.8%. FCF usage of -$68MM came in above consensus of -$155MM due to higher EBITDA.
• Margins a key area of focus on the call. Margins came in below consensus expectations in the quarter and down y/y, which management attributed to mix. This was in focus on the call given solid Global deliveries as well as strong Services revenue, both of which we believe are higher margin versus the consolidated average. Nevertheless, we see a number of opportunities to drive margin improvement next year, including higher Global deliveries, increasing Services revenue, as well as modification work in the Defense segment, in addition to a "nice" pricing tailwind alluded to by management on the conference call. We remain confident in management's ability to execute on margins next year given indication from peers that supply chain pressures are improving and point to our unchanged (and Street high) 2025 EBITDA estimate of $1.68B.
• Balanced book-to-bill and stable backlog – impressive within the context of a big uptick in deliveries. Management pointed to a solid demand environment as evidenced by a book to bill of 1x and stable backlog despite a big uptick in deliveries. Overall, we continue to view a solid demand backdrop as giving BBD operational predictability and gives us confidence in the company's ability to achieve its 2025 targets, which are key to our very positive investment thesis on the shares.
• Supply chain related M&A a possibility. Management spoke to the possibility of re-purchasing the Ireland-based fuselage business, which it sold to Spirit in 2020. We believe it makes sense from an operational and supply chain perspective given the history. How much it would cost is less clear, though we expect it to be lower than the ~$200MM in net proceeds originally paid to BBD given the various carve-outs.
Estimates and PT. We take higher our 2024 EBITDA estimate to $1.34B (from $1.32B) driven by solid Q2 results. We remain confident in our unchanged (street high) 2025 estimate of $1.68B reflecting a solid demand pipeline and in our view a meaningful opportunity to drive margin improvement. PT unchanged at $133.